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Sunday, August 22, 2010

The "Portable Income" - Financial PFDs We Should All Strive to Obtain

PFDs - Personal Flotation Devices (or Perfect For Depressions)

In one of my works-in-progress, (with the working title "A Path to Prosperity - digging out from debt, firing your landlord and eventually, your boss - all on about $10 bucks an hour"), one of the key themes I try and hammer home, is the importance of a location-independent income - what I call a 'Portable Income". Unfettered mobility + an income that follows you wherever you go - being a sort of modern-day nomad with a paycheck, will give you a tremendous advantage over most others as the Great Decession deepens and settles in for the long haul.

You'll have an income, while others will be out of work, and eventually, out of UE benefits. You'll be free to relocate to wherever you find most advantageous, while others will be stuck on the unemployment line, tethered by hope to a local industry that ain't coming back anytime soon, and chained by necessity and circumstance to an underwater home that's worth less than it's mortgage balance, that's costing them big bucks they simply no longer have to keep it, and that can't be sold anytime soon for anywhere near what is still owed. And even if not behind on their mortgage, they will be geographically limited in how far they can go to chase what little paid work is out there. There is a point of diminishing return, beyond which it simply won't pay to travel for work. You, on the other hand, *ideally*, will have your work and income follow YOU. This would free up your time, energy and resources to devote to more important things.

And yes, yes,...I know what you're thinking; "Uhm,...wait a minute?...you rent and work for someone else!?!". This is true, (and I was quite honest and up-front about that in my "About Me" page, no?) but in my defense, if the economy didn't fall off the cliff at the most inopportune moment - an event an ordinary "little guy" like myself could not reasonably have been expected to foresee, let alone have any control over, I would've already achieved the first two items in the subtitle over a year ago, as I already bought and paid for the modest and inexpensive home I intended to relocate-to. The best-laid plans of mice and men, and all that.

I'm still quite a ways off from "firing my boss", though - the crash not only caught me off guard, it also personally affected me, has waylaid me and caused me to put my plans on hold. It has also become apparent to me, that the economy is unlikely to recover, and will likely get worse. Like everyone else, I need an income to live on, and have slowly become convinced that depending on traditional "employment" for one's livelihood in this increasingly volatile and unstable jobs-market is unwise. It is why I chose to stay here and rent on expensive Long Island , rather than take a chance and relocate to a State where I know almost no one, and where the unemployment % is substantially worse - no matter HOW cheap it is to live there. Afterall, if your income drops to zero, it won't matter whether your housing costs are $1,500 a month or $150. In the latter case, it will simply take somewhat longer before the lights go off, but *eventually*, off they will go, if you don't find another source of income. Best to have that all sorted out before committing to a move.

Although I would need little in way of income to live reasonably well once I relocate, it's become apparent I cannot count on finding employment there, and would be at serious risk of financial difficulties(if not disaster), should I lose my job in a State with 12+% unemployment and where I have no network through which to obtain another job fairly quickly. It's also why I have begun focusing, in earnest, on creating my own portable income. And you should, too. But that's grist for another post, and I want to get back to the subject at hand.

So, what exactly is a "Portable Income"? Well, there are many various kinds in different categories and degrees varying from 100% active, location-dependant to 100% passive, location-independent. First off, the whole point of creating such an income-stream is two-fold - in a nutshell:

1) You want to be as independent of the jobs-market as possible.

2) You want to be able to relocate to somewhere, where the cost of living is cheap.

There are other factors to consider of course, especially regarding #2, but these are the two main reasons to pursue such an income.

Now let's look at a few varied examples:

At the left-end of the spectrum - "100% active, location-dependant"

The "100% active", means you have to keep working to keep making money. Now, this is not necessarily a bad thing - many people find dignity, and derive satisfaction and meaning from their work. (I'm just not one of them, LOL;) There is absolutely nothing wrong with honest work, such as working with your hands. The main drawback, however, is that there may come a time when you are no longer able or willing to keep working.

Which brings us to the location-dependant part. Let's say you are a mechanic, and both you and your toolbox are portable. You can fix things, you are good at what you do, and can charge a very reasonable amount for your services, since you don't have the overhead of a shop nor need to pay a shop-owner a percentage of your take. You work out of your van, and can travel to your customers if for whatever reason, they cannot come to you. You build up a clientele based on word of mouth and referrals, as well as repeat business. But having done so, you cannot easily pack up and move to another part of the State, let alone country, without effectively losing your customer base. So if you plan on making a go of this type of work, you'd do well to do your research as to where you want to settle down, and plan on staying put there. This income is only portable in that you could conceivably start this nearly anywhere, albeit reasonably close to your intended customers.

Further to the right of the spectrum, 100% active, (more-or-less) location-independent:

You sell physical goods on ebay, NON-drop-shipped, and basically only need to be reasonably close to a Post Office or FedEx/UPS drop-off point.

Further to the right some more."somewhat" active, location-independent.

You work with a drop-shipper who handles the shipping and warehousing of goods, while you concentrate on the marketing and sales (ebay, your own website, ect)

And further still, 100% passive, location-independent:

This actually encompasses a wide range of income sources, from Social Security, disability pensions, annuities, rental income, pensions, structured settlements, reverse mortgages, dividend income, ect, ect, all the way to a fully-automated online business, such as selling an ebook you wrote via clickbank, and letting others do the marketing via an affiliate program, or creating or commissioning your own educational CD or DVD, using an order fulfillment house that handles reproduction and distribution of your CD or DVD. Both of these last two examples are also what I call "work once, get paid forever"-types of endeavours.

At this point I suppose I should mention telecommuting jobs, temp-work and the like - while it's certainly possible to make a living online, working for someone else, it is, IMHO, basically employment minus the commute (whether employee, temp or IC), and is still dependant on an employer, thus carrying the same risks of layoffs, no work available, a slowdown or mismanagement problem, as well as a good old fashioned falling out. This, and my independent streak, tell me that I'd be better off in the long run by being my own employer, and to the extent possible, my own economy.

While going this route is certainly not without it's own set of risks, once up and running, the risks are spread out among hundreds of customers vs one or two employers. If you lose a few customers, you won't be out of business. If you lose your only employer. you ARE out of business. It's a trade-off to be sure - while an employee-type situation generally means a steady paycheck, few worries and little control, it's also an "all your eggs in one basket"- scenario. Which is fine until something happens to the basket. In this age of uncertainty, disposable employees, business failures and layoffs - as well as constant worries about job security, I think it's better to shoot for something that is independent of the job-market as well.

No one type of portable income stream is right for everyone, of course, but from the examples I posted, you can get an idea of the various types of portable incomes there are, and can probably use your imagination and creativity to get ideas of which one might work for you. And surely, you can see the potential? Not only the potential for being free of the hassles of holding down a job,once and for all, but also of being able to live in a nice, clean, healthy area with a low population density, low taxes and low cost of living - that may otherwise have been impossible for you to consider had employment prospects been a consideration.

As long as your portable income is fairly steady and reliable, and can cover your basic living expenses with some room to spare, there is really no reason why it can't work. If this sounds risky, keep in mind, you would be starting small, with little or no investment, from the safety and (relative)security of your existing home and job. If you think basing an income that rests on the continued operation and functionality of the internet is risky, consider that if and when the grid DOES go down for an extended time - perhaps even the Last Time, taking the internets with it, you probably won't have a job for long, anyway.

So you might as well go for it. And who knows, maybe you'll become one of those lucky YouTube stars

1 comment:

i agree with working for yourself, I have been doing so for many years, heavy truck repair including welding and custom work. Problem for me is the 60 % drop in business over the last two years while still maintaining a shop overhead that should have 4 men working. It whittled down to just me and a part time guy, but the overhead prevented me from making any profit. We are going to have to live on a much cheaper wage in the near future, keeping overhead in relation to income will be critical. Up here in Ontario, many are in debt to the hilt and already people are loosing thier homes and the bankruptcy rates are climbing, our housing nightmare is just starting to unfold.